Fruit, Fear and Brexit

At the end of January, I was interested to learn how the BBC's news website reported Italy's recession. It was not on their radar. Unsurprisingly, several scare stories were. One, by business editor Simon Jack, was headlined "No-deal Brexit to leave shelves empty warn retailers." My attention was grabbed, however, by a dramatic warning with a stated cost impact. "Tomato prices 'may rise 10%' if there is a no-deal Brexit." I clicked the headline to discover it was a 'Video journalism' feature; "The price of imported tomatoes could rise by as much as 10% on UK shelves in the event of a no-deal Brexit, Spanish growers have warned." The accompanying video was a promotional feature for an Alicante tomato grower. He earnestly explained that he could not absorb any more costs, such as preparing paper work. "After all," he lamented, "tomato prices have remained the same for 10 or 15 years." In addition to paper work, there 'might' be duty as well. Tomatoes are important; indeed 48% of Canary Island production is sold in the UK.

Project fear assumptions are always predicated on a supine defenceless UK meekly accepting ruin. Accepting that we are defenceless. It is noteworthy that, in 1988, the UK produced 66%, or two-thirds, of its food needs. Today, that figure has fallen to 50%. In the same period, imports from the EU have risen from 19 to 32%. In terms of fresh foods, the picture is stark. 62% of all fresh foods in Britain are imported, much from the EU, and almost half of those goods (46%) originate from Spain with an additional 22% from the Netherlands. There are obvious opportunities for British growers, as well as third countries and more of that later. The EU's sanctions and Russia's retaliatory embargo forced a renaissance in their agriculture.According to a 2017 FT report agriculture has overtaken arms sales to become Russia's second-biggest export sector. The UK agricultural sector faces the post EU world in a much stronger position than did Russia in 2013. A renaissance is overdue and as Obama said, "Yes we can."

There is no reason why the UK should impose the same tariffs as the EU, after Brexit. The world is full of eager producers of everything we need. Together with our own potential we can ensure well-stocked shops and lower prices. EU sanctions on Russia have cost millions in extra subsidies to buy surplus produce, €400m up to 2016. The UK is a far larger market and EU producers far more vulnerable.Without our money they will be hard pressed. Why that vulnerability, especially of the Spanish, has not been used by British negotiators is puzzling - to say the least.

To meet the objectives, a system of agricultural subsidies seeks to ensure a minimum return for growers. According to the EU, in 2017, of a total CAP budget of €58.9 Billion, direct payments accounted for €41.6 billion. Main beneficiaries of these 'Tier 1' payments (in € billions) were: France 7.1; Spain 5.5; Germany 5.5; Italy 3.8 and Poland 3.5. An odd fact is that the EU subsidises GM crops in Spain! In fairness, it should be pointed out that fruit and vegetable growers claim they don't get enough of this largesse.

Most fresh fruit and vegetables are sent to markets on 'Consignment' and the price is determined the day of sale based on supply and demand. The produce does not have a cost. Labour plus fixed costs, duty, transport and packing are costs that are deducted from the realised price and determine whether the grower finds it worthwhile to produce. However, in the EU it is rather different. A mishmash of Soviet planning controls married to the most fundamental free market system (if one excludes barter) attempts to square the circle.

Consumers and taxpayers support the CAP system through higher prices, subsidies and import taxes. In addition to subsidies and surplus purchasing, the EU protects growers of 15 fruits and vegetables against international competition during the growing season. It uses quotas and an arcane system of ad valorem tariffs combined with EPS. The aim of EPS is to restrict imports below a product-specific, politically designated entry price. SIV (the Standard Import Value) price is set daily for each country whose produce is in an EU market. It is based on a representative selection of 'Marketing' centres and is published for each product listed, for all available varieties and sizes. The final SIV is calculated after deductions for transport, insurance, wholesale margin and handling. There are three choices available to importers when deciding how to declare value for duty purposes. In practice, because of the consignment system, SIV is most widely used.

There is no better way to explain the system than to quote the commission: "When the EPS is undercut by 8% or more, the maximum specific tariff, referred to as the maximum tariff equivalent (MTE)3, of up to 80% of the EP (entry price) is charged. For example, the EPS is applied to oranges during the EU orange harvest season in the period December 1–May 31. The MFN tariff for oranges seasonally varies between 3.2% and 16.0% whereas the MFN EP remains constant at a level of 354 €/t. If oranges are exported to the EU at a price of 336.3 €/t, the EP is undercut by 5%. This implies that the exporter has to pay an additional specific tariff of 17.7 €/t, which is equal to the gap between the import price and the EP. If the entry price for oranges is undercut by 8% or more, an additional specific tariff at the level of the MTE of 71 €/t is charged."

I've lived and worked in a number of countries. Moving countries involves adjustment. One that I experienced many times was the adjustment of taste. Returning to the UK after periods working in Africa and Central Asia had me wondering if I'd know what I was eating with my eyes closed. Compared with the vibrant, flavoursome, mouth wateringly tasty vegetables I had been used to, the UK ones were bland. Poly-tunnels, hydroponics, intensive breeding, all have conspired to take taste off the plate. When I lived in Lagos, my garden, even in the wet season, was a cornucopia that never stopped flowing with vegetables and melons. After all, the climate is not dissimilar to the artificial ones that are expensively reproduced in European green houses.

Despite EU claims that it helps developing countries with 'Sweetheart' deals, many find it impossible to develop and as a result are reliant on aid. The potential for countries in Sub Saharan West Africa are enormous if they really had a level playing field. The upside for us would be sustainable development of tasty produce plus a reduction of aid payments. UK producers would also benefit through innovation and concentration on high quality seasonal produce. Crowborough tomatoes, famous for quality and taste, were once eagerly awaited, now no one has even heard of them. A visit to any farmer's market will convince anyone of the potential for good quality homegrown produce.

Kantar (the consultancy group) state in their February 2019 white paper: 'The Impact of Brexit on UK Grocery Industry and Shoppers:' "Kantar believes that most of the measures being enacted right now are both sustainable for retailers and better for consumers. In total, the investments being made to ensure a smooth Brexit are those required under any circumstances to help make the UK a healthier, more environmentally friendly nation. In some ways, we should be thankful that Brexit has injected more urgency into these initiatives." They sum up: "Kantar's view is that, as a result of Brexit, many of Britain's grocers will find themselves at the global forefront of exploring new retail technologies. This can only be a positive for Britain's labour force, British consumers, and the country's ability to attract investment and partnership."

About the author

Michael Wood dropped out of art school and worked in agriculture until accepted for business training by a major Japanese trading house. Working for major Japanese, Dutch and German firms he was involved in International trade from the mid sixties to his retirement in 2010. His career focus was mainly on agricultural products and he has extensive knowledge of perishables both short sea imports and deep sea exports. He travelled widely and has lived and worked in Nigeria, Ukraine, Central Asia as well as the EU (Belgium, Germany and Luxembourg). He became involved in information technology in the late 90s and was engaged by LM Ericsson to advise on a mobile telephone business model applicable to sparsely populated developing countries in Central Asia.

Prior to retirement he was CFO and GM of a London based manufacturing, warehousing and property company. The manufacturing division sourced raw materials and parts from Italy, UK, China, Taiwan and India.

After retirement he developed disability products with Chinese manufactures and imported them into the UK.

He now lives in London with his wife, a lawyer, and writes on a variety of subjects including disability issues.